Oxford Lane Capital Corp. Q1 FY2025 earnings call

• Net asset value per share on June 30, 2024 was $4.91 vs $4.90 prior quarter. - GAAP total investment income for quarter ended June 30 was ~$89.8 million, with breakdown by CLO equity/warehouse and CLO debt/other income. - Net investment income and core net investment income had increases. - Net unrealized depreciation and realized gains noted. - Weighted average yields for CLO debt and equity investments provided. - ~45.9 million shares issued via at-the-market offering, ~$216.9 million in additional CLO investments, and ~$96.3 million from sales/repayments. - U.S. loan market price index trends, median U.S. CLO equity net asset value decrease, median weighted average spreads decrease, 12-month trailing default rate decrease, CLO new issuance totaled ~$53 billion. - Oxford Lane remained active in trading CLO equity and junior debt, lengthened weighted average reinvestment period of CLO equity portfolio.

As of June 30, 2024, net asset value per share was $4.91. For the quarter ended June 30, GAAP total investment income was approximately $89.8 million, an increase of ~$7.1 million from prior quarter. GAAP total investment income consisted of ~$84 million from CLO equity and CLO warehouse investments and ~$5.7 million from CLO debt investments and other income. GAAP net investment income was approximately $56 million or $0.22 per share, and core net investment income was approximately $107.2 million or $0.41 per share. Net unrealized depreciation on investments was ~$14.4 million and net realized gains were ~$6.1 million. Net increase in net assets from operations was ~$47.7 million or $0.18 per share. Weighted average yield of CLO debt investments at current cost was 17.4% (up from 17.1% prior), weighted average effective yield of CLO equity investments at current cost was 16.8% (down from 16.9% prior), and weighted average cash distribution yield of CLO equity investments at current cost was 26.9% (up from 23.5% prior). During the quarter, ~45.9 million shares of common stock were issued via at-the-market offering, resulting in net proceeds of ~$242.1 million. Additional CLO investments of ~$216.9 million were made, and ~$96.3 million was received from sales and repayments.

• Out-of-court restructuring exchanges and subpar buybacks not captured in default rate remain elevated. - Distress ratio (percentage of loans with price below 80% of par) ended quarter at 4.4% (up from ~3.5% prior). - Leveraged loan repricing wave can impact loan spreads and CLO equity arbitrage.

Q: There's been a leveraged loan repricing wave and impact on loan spreads and CLO equity arbitrage, what caused CLO cash yields to increase so much this quarter?

A: A lot was due to lag in January vs April payments, managers continuing to build spread up till this quarter, July payments taking a dip from April payments, and some first-time payments bolstering the cash yield number for this quarter.

Q: Expectations for remaining ability to refinance or reset liabilities in CLO equity portfolio to defend yields against loan spread compression?

A: Jonathan said they really don't make public projections or pronouncements about those kinds of forward-looking activities but see CLO liability market as generally constructive still.

Q: Ratings agencies issue and downgrade upgrade ratio above 1x pressures CCC buckets, how are portfolio managers dealing with that trend?

A: Joe said managers have been proactively cleaning up CCC baskets in anticipation of resetting into cleaner deal, CCC baskets declining a bit, and VOC ratios remaining relatively healthy even if bumping up against limits.

Q: Appetite to issue additional debt or preferred shares to lower weighted average cost of capital?

A: Jonathan said appetite is principally predicated on pricing, would selectively look at additional debt only at compelling pricing and no target leverage shared.

Q: Sales and repayment activity during the quarter, reflective of market activity or portfolio specific factors?

A: Jonathan said it's largely a function of the size of the fund that has grown substantially over the last year or two, and they are committed to running an actively managed portfolio which generates significant trading activity.

Q: Quarter-over-quarter increase in expenses, any onetime or inflationary creep?

A: Jonathan said most likely just the size of the fund, as they raised enormous amount of capital in recent quarters, which would lead to higher dollar-denominated expenses.

Q: Credit, out-of-court restructurings elevated, distressed prices increase, any areas of stress in portfolio?

A: Jonathan said nothing readily apparent outside of mainstream perceptions about economic activity, continued concern about consumer behavior and certain parts of the economy, but no specific insights outside popular perception.